The internal rate of return of Project B is greater than Project A

Project B accumulates more cash than Project A

To determine the best project, the cashflows of Project A and Project B must be evaluated over a common number of years, which in this case is 10 years

The capital cost of Project A is 50% of Project B

Project A must be more profitable than project B because it has a 5 year cashflow life

9.0%

50%

8.4%

9.6%

15.0%

The discounted cashflow rate is zero

The internal rate of return is 12.0%

Your recommendation on whether to proceed with this project will depend upon the organization’s project hurdle rate of return

A Company’s project hurdle rate is equal or higher than its weighted average cost of capital

Value of property, plant and equipment used to produce saleable goods

Trade and other receivables

Current assets divided by current liabilities

Current assets minus current liabilities

Inventory plus value of property, plant and equipment

Because the outcomes are always positive

Because their probabilities are well-known and easily modeled

Because Black Swan events involve extreme probabilities or consequences, making EV unreliable

Because these events only occur in financial markets

SWOT Analysis

Monte Carlo Simulation

HAZOP

EV = Outcome / Probability

EV is used when the exact cost of failure is unknown

EV = Probability × Outcome, and the best choice has the highest EV

To evaluate the cost of failure after a project ends

To identify success factors during execution

To anticipate possible points of failure before the project begins

To compare past projects with current ones